Micron seems well positioned to ride several AI tailwinds in 2025.
Artificial intelligence (AI) has been one of the hottest investment themes on Wall Street in 2024. Although the euphoria surrounding AI seems to have lessened by now, the allure of high-quality and fundamentally strong AI-powered stocks is still strong — on the back of strong demand for AI solutions across industries and functions. With AI technologies increasingly becoming a critical component of the current technology infrastructure, investing in high-growth, AI-powered stocks can generate rich returns in the long run.
Investing in multiple AI stocks can prove to be less risky than concentrating significant funds in a single stock. However, if I had to choose only one AI stock, it would most likely be Micron Technology (MU -3.62%). Here’s why this stock can be a smart buy in 2025.
Robust financials
Micron has emerged as a key beneficiary of the robust demand for memory and data storage products in data centers and various AI-powered enterprise applications. Not surprisingly, the AI tailwind is playing a pivotal role in transforming Micron’s financial growth trajectory.
In the recent quarter (first quarter fiscal 2025 ending Nov. 28, 2024), Micron’s data center revenues were up 400% year over year and 40% sequentially, accounting for more than half of the company’s total revenues. Micron’s overall revenues soared by 84% year over year to $8.7 billion. The company also reported non-GAAP earnings per share (EPS) of $1.79, up 51.7% on a year-over-year basis.
Analysts expect Micron’s revenues to grow 39.3% year over year to $35 billion in fiscal 2025. Furthermore, they also estimate non-GAAP EPS to be $6.89, up by almost 4.3 times on a year-over-year basis. These growth expectations have made Micron a standout performer in the semiconductor industry.
HBM is a major tailwind
Micron has been rapidly expanding its footprint in the high bandwidth memory (HBM) space, increasing production of 8-high HBM3E chips and now successfully transitioning to even more power-efficient, 12-high HBM3E chips. The company’s 8-high HBM3E chips are being designed on Nvidia‘s Blackwell B200 and GB200 platforms. Micron has also started high-volume shipments to its second largest HBM customer and plans to commence shipments to its third-largest customer in early 2025.
Subsequently, Micron estimates the target addressable market for HBM to expand from more than $30 billion in 2025 to over $100 billion in 2030 — bigger than the entire DRAM market size in 2024. The company expects to reach a share of a low-20s percentage in the HBM market by the second half of 2025. An increasing revenue shift toward HBM products can further boost Micron’s profitability since these are higher-margin products.
DRAM business
Besides HBM, Micron is also seeing strong momentum in the overall DRAM business. In the first quarter, the company reported DRAM revenues of $6.4 billion, up 87% year over year. The amount made up 73% of total revenues. This growth was mainly driven by solid DRAM demand in data centers.
Micron’s leadership in advanced DRAM nodes is also a major growth catalyst. The company is currently ramping up production with the 1-beta technology node and plans to ramp up production with the even more advanced 1-gamma technology node using extreme ultraviolet (EUV) lithography in 2025. Furthermore, Micron also expects to generate multiple billions of dollars in revenue in fiscal 2025 from the sale of high-capacity DRAM products.
Micron estimates the overall DRAM industry bit supply to grow in tandem with bit demand in 2025. However, DRAM production with leading-edge nodes may see some tightness as HBM supply increases to fulfill rising data center demand. Plus, the company is focusing on controlling DRAM front-end costs within a mid-to-high, single-digit percentage range in fiscal 2025.
PC refresh cycle
While the PC refresh cycle was slower than previously expected in 2024, the end of life of Windows 10 in October 2025 and replacement of an aging installed base with AI PCs are expected to be catalysts in 2025. Since AI PCs require higher DRAM content, the company estimates significant growth even with moderate volume shipments.
Valuation
Micron’s shares have seen significant volatility in the past few months. The company managed to surpass consensus revenue and earnings estimates in Q1. However, lower-than-expected Q2 guidance, especially for the NAND segment, seems to have negatively affected investor sentiment. Hence, the stock tanked as low as $85 after the earnings release in mid-December 2024. But since that low point, Micron’s stock has recovered significantly and is trading close to $105.75 (as of Jan. 20, 2025).
Micron is currently trading at 4.14 times trailing 12-month sales, slightly lower than its three-year average price-to-sales ratio of 4.42. Considering the anticipated gains from expanding AI infrastructure and DRAM strength, the discounted valuation seems to be an attractive entry point for astute investors.
Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
